FTC Loses the Androgel Appeal; Court Skepticism of “Pay for Delay” Claims Continues

April 26, 2012

On April 25, 2012, the 11th Circuit Court of Appeals issued its long-awaited decision in the Androgel litigation, Federal Trade Commission v. Watson Pharmaceuticals, Inc. et al., affirming the District Court’s dismissal of the FTC’s complaint. This decision continues a trend of losses in appellate courts for plaintiffs making “pay for delay” allegations, including three straight in the 11th Circuit in which the FTC has participated as a party or as amicus. (“Pay for delay” is the term by which the FTC and private plaintiffs sometimes attack patent litigation settlements related to Hatch Waxman Act “Paragraph IV” filings, invoking the antitrust or unfair competition laws and alleging that a brand pharmaceutical manufacturer has provided a benefit to a generic in order to cause the generic to “delay” entry into the market.)

The decision is available on the 11th Circuit's website at this link:

Observers who follow Hatch Waxman Act legal issues were watching this litigation closely. The FTC had identified it as an important case that the FTC expected to win (making statements to this effect in March of 2012, during the annual meeting of the American Bar Association’s Antitrust Section). The oral argument was unusually long, raising expectations in some quarters that the FTC might fare better than in previous cases. But the court ultimately appears to have decided to issue a simple opinion, emphasizing its Valley Drug (11th Cir. 2003), Schering (2005), and Andrx (2005) decisions as controlling precedent.

Nevertheless, the decision is sure to be cited widely due to the court’s colorful diction and its clarity on a key issue. As to the key issue, the court emphasized that defendants need not prove that the patent was likely to be invalid, and that a plaintiff’s allegation of “51 percent” likelihood of patent invalidity would not be enough to sustain an antitrust claim against a patent settlement, even where the complaint alleges “pay for delay.” As to diction, the following four passages from the opinion give a flavor of the court’s words:

  • “A party likely to win might not want to play the odds for the same reason that one likely to survive a game of Russian roulette might not want to take a turn. With four chambers of a seven-chamber revolver unloaded, a party pulling the trigger is likely (57 percent to 43 percent) to survive, but the undertaking is still one that can lead to undertaking. Patent litigation can also be a high stakes, spin-the-chambers, all or nothing undertaking.”
  • “The FTC’s retrospective predict-the-likely-outcome-that-never-came approach would also impose heavy burdens on the parties and courts. It would require, in the FTC’s words, ‘viewing the situation objectively as of the time of the settlement.’ In this case, assaying the infringement claim ‘as of the time of settlement’ would have required mining through mountains of evidence — when the lawsuit settled, more than 40 depositions had been taken and one side alone had produced more than 350,000 pages of documents. The settlement made that unnecessary, but the FTC’s approach would put that burden back on the parties and the court, undo much of the benefit of settling patent litigation, and discourage settlements. Our legal system can ill afford that.”
  • “The FTC’s approach is in tension with Congress’ decision to have appeals involving patent issues decided by the Federal Circuit.”
  • “In closing, it is worth emphasizing that what the FTC proposes is that we attempt to decide how some other court in some other case at some other time was likely to have resolved some other claim if it had been pursued to judgment. If we did that, we would be deciding a patent case within an antitrust case about the settlement of the patent case — a turducken task. Even if we found that prospect palatable, we would be bound to follow the simpler recipe for deciding these cases, which is laid out in our existing precedent. As we interpret that precedent, the FTC loses this appeal.”

As of April 26, the FTC had not announced whether it plans to appeal. As a government entity, the agency normally would have 60 days to make that determination.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Leiv Blad
Frank Hinman
Thane Scott

This article was originally published by Bingham McCutchen LLP.